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Monthly Archives: April 2015

During the 2014 election cycle, banks and financial companies were associated with almost half a billion dollars in campaign contributions to candidates for national office. (See AFR’s latest “Wall Street Money in Washington” report, drawing on data compiled by the Center for Responsive Politics.) That figure was more than twice the spending level of the next biggest business sector.

What do these institutions expect in return? Benefactors and beneficiaries alike almost always insist there’s no quid pro quo. But several weeks ago, insiders at Citigroup, JPMorgan Chase and BankofAmerica broke with that tradition, quietly acknowledging an effort to use their political spending for a very clear purpose: to get Senate Democrats to back away from calls by one of their leaders, Senator Elizabeth Warren (D-Mass.), for a breakup of the biggest banks.

In a December speech, Warren cited Citi as a bank that had grown dangerously large. “Instead of passing laws that create new bailout opportunities for Too-Big-To-Fail banks, let’s pass… something – anything – that would help break up these giant banks,” she said.

That statement, coupled with Warren’s growing influence among Senate Democrats, caused alarm on Wall Street and led to a discussions in which, Reuters reported, “representatives from Citigroup, JPMorgan, Goldman Sachs and Bank of America [debated] ways to urge Democrats, including Warren and Ohio Senator Sherrod Brown, to soften their party’s tone…”

Citi in particular, according to the Reuters article (citing “sources inside the bank”), “decided to withhold donations… to the Senate Democratic Campaign Committee over concerns that Senate Democrats could give Warren and lawmakers who share her views more power.” JPMorgan, the article added, has given Senate Democrats only a third of its usual amount this year, while its “representatives have met Democratic Party officials to emphasize the connection between its annual contribution and the need for a friendlier attitude toward the banks.”

All this led Ari Rabin-Havt of the American Prospect to ask: “Did one of the largest banks in the United States accidentally acknowledge an attempt to bribe members of Congress?” And: “Will JP Morgan face any investigation, let alone penalty, for their attempted bribe?”

“It would be naïve to think so,” Havt wrote, answering his own question. “Yet the only defense for this sort of corruption seems to be that it happens all the time.”

In the short run, at least, Wall Street’s efforts don’t seem to have had the intended effect. Warren, according to USA Today, “immediately seized on the report, using it in a defiant fundraising appeal for her network of supporters nationwide to make up the amount in contributions to the Senate campaign fund.”

“The big banks have thrown around money for years,” she wrote in an e-mail posted on her blog. “But they are moving out of the shadows. They have reached a new level of brazenness, demanding that Senate Democrats grovel before them.”

Another prominent Democrat responded by vowing not to accept any campaign donations from the megabanks. “Wall Street won’t be happy until Democrats stop listening to progressives like me and Elizabeth Warren – and instead carry out orders from the biggest banks in the world,” said Maryland Representative (and Senate candidate) Donna Edwards . And the chairman of Democracy for America, a group founded by former Democratic National Committee Chairman Howard Dean, urged candidates across the country to follow Edwards’ example if they “want to prove that they’re not owned by Wall Street bullies.”

The prepaid card market is relatively new, and growing quickly — the number of prepaid transactions increased from 1.3 billion in 2009 to 3.3 billion in 2013. AFR has urged the CFPB to establish rules that will ensure consumers are protected in this growing market. And the CFPB has proposed to do just that.

Last month, AFR and 44 members of our coalition submitted a comment letter spelling out a number of ways in which prepaid cards need to be made safer and fairer. Now we have delivered a petition in which more than 8,500 people urge the CFPB to move ahead with rules to keep prepaid cards from being loaded up with tricks or traps.

Prepaid cards are essentially debit cards that are not tied to an individual bank account (although it is becoming more common for banks to offer them). Prepaid cards can be used by employers in lieu of paychecks, or by colleges as a way to get financial aid to students. They are also often used by individuals who have been shut out of bank accounts or hit with too many bank overdraft fees. Prepaid cards can be very useful for some consumers, but they can also come with significant disadvantages—and lack basic consumer protections that apply to debit and credit cards. Some are linked to payday-like loan features, or to fees that consumers don’t see coming. Sometimes colleges or employers steer students or employees into accepting funds on prepaid cards instead of a personal bank account – a practice that can create problems, such as a shortage or absence of free ATMS, the inability to write checks, and a lack of paper statements.

The CFPB proposal takes a number of important steps to offer greater protections for consumers and to advance a priority of ours – keeping prepaid cards actually prepaid, so that users can only spend dollars loaded onto the cards, and cannot overdraft, triggering high fees as a result. The proposed rule very substantially limits, but does not totally prohibit, overdraft fees.

The petition asks the Bureau to make sure that prepaid cards have “no overdraft fees or credit features that cause people to spend more money than they have put on the card, and charge them extra for the ‘privilege….’ As you move forward in the rule-writing process, we strongly support the separation of prepaid from credit products, the elimination of overdraft fees, increased protections for those at risk of being steered to higher-cost payroll cards by their employers or schools, and the adoption of basic consumer protections that already apply to ordinary credit cards and bank accounts.”

The public comment period on the Bureau’s proposal ended in late March. A final rule is expected later this year or early next year.

Wall Street bonuses are back in the spotlight. The 2014 figures are out, and so is a new study by the Institute for Policy Studies: “Off the Deep End: The Wall Street Bonus Pool and Low-Wage Workers.” Last year, it shows, the nation’s bankers got bonuses adding up to more than double the combined earnings of the nation’s full-time minimum-wage workers.

Since the first group is far smaller than the second (167,800 bankers versus a minimum-wage workforce of just over a million), this works out to an even more astonishing per-person gap: while the average minimum wage earner made $13,903, the average banker got a bonus of $169,845 – and, of course, that’s extramoney, above and beyond the banker’s base pay.

Numbers like these raise profound questions of economic justice. They also remind us of the role that reckless Wall Street pay practices played in the 2008 financial meltdown, and of reforms enacted by Congress that were intended to do something about that problem.

The Dodd-Frank Act included two pay-related provisions. Section 956 prohibits compensation practices that incentivize dangerous behavior on the part of Wall Street traders and executives. And Section 953 requires all publicly traded companies to disclose the gap between the pay of their CEO, on the one hand, and their median employee, on the other. The idea was to help shareholders guard their pocketbooks against self-seeking executives and better evaluate the long-term soundness of companies in light of evidence that runaway pay at the top inhibits teamwork and reduces employee morale and productivity.

Neither of these provisions has been implemented, however. Last fall, SEC chair Mary Jo White said she expected her agency to complete action on Section 953 by the end of 2014. But since she said that, her agency has been silent, while Wall Street lobbyists have continued to fight the idea – and to make absurd claims about the supposedly burdensome costs of compiling the information.

When it comes to Section 956, the situation is more promising. Federal regulators came out with a woefully inadequate proposal, calling for a modest delay between the awarding and payout of bonuses for a limited number of senior executives, in 2011; and let the matter slide for the next three years. In recent months, however, the Administration has highlighted the importance of this provision, with President Obama urging regulators to act and Treasury Secretary Jacob Lew identifying pay reform as a high-priority task. And now the responsible regulators are working on a whole new draft proposal which we hope and expect will be stronger.

Meanwhile, European Union officials have come out with guidelines limiting executive pay at financial firms to 100% of base salary, or 200% with shareholder approval. Perhaps the forthright attitude of EU regulators on this issue is beginning to catch on in the U.S.

On Thursday, March 26th the CFPB went to Richmond, VA, to hold a field hearing and release a first look at its potential plans to regulate payday, installment and car title loans. The draft proposal is broad in scope and holds at its core the importance of an “ability to repay” standard. Count up two big wins for the advocacy community! But the proposal also contemplates dangerous exceptions to the meaningful application of the ability to repay principle. We’ll be working hard to push the CFPB to close the loopholes as this process moves forward. Groups from around the country both applauded the progress the CFPB is taking on the issue and highlighted the importance of strengthening the rule.

At the hearing, CFPB Director Richard Cordray, Virginia Attorney General Mark Herring, and panelists from Virginia Poverty Law Center, Center for Responsible Lending, The Leadership Conference on Civil and Human Rights and California Reinvestment Coalition all stressed the need for a strong rule that will #stopthedebttrap. “CFPB can have tremendous impact in protecting borrowers from dangerous loans,” said Mike Calhoun of Center for Responsible Lending. He continued, “So it’s critical that CFPB’s rule address payday installment loans, and also that states remain vigilant in applying state usury limits to these loans.”

Beforehand, more than 80 advocates and allies gathered at the Richmond Convention Center for a press conference and community meeting, and during the hearing more than 30 people – borrowers, faith leaders, state and national advocates, consumer lawyers, and others – testified in favor of a strong payday rule.

Thanks to all who attended, spoke, tweeted, retweeted, selfied, and thunderclapped to get our #stopthedebttrap message out! Click here to see the Storify from the event, which features tweets posted on the day of the hearing.

Thursday was a big day for predatory lending reform asPresident Obama also took up the issue during his visit to Birmingham Alabama. He spoke about the dangers of predatory lending, “You borrow money to pay for the money you already borrowed,” the President said, aptly describing the way most payday loans play out. “… If you take out a $500 loan, it’s easy to wind up paying more than $1,000 in interest and fees.” The President also participated in a roundtable meeting on the subject of payday loan reform with community leaders. Click here to view video of the President’s remarks on the need to protect consumers from predatory lending practices.

Click here to check out the full range of national and local press from the Richmond & Alabama events.

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This blog is maintained by AFR as a forum for ongoing news and commentary about the fight for effective financial reform. Blog posts represent the opinions of their authors / posters, and do not necessarily represent the views of the AFR coalition or coalition members.